‘It’s going to be a mess’: Confluence of challenges threaten new NAFTA vote

A record-breaking government shutdown, an unpredictable batch of first-time congressional Democrats and an intensifying U.S. presidential campaign cycle are muddying the path to ratification for the new NAFTA — with some observers questioning whether the deal will even make it to a vote this year.

Though Canada’s ambassador to Washington, David McNaughton, expressed confidence about the deal’s passage as recently as last week, a confluence of challenges — including calls from some Democrats for a return to the bargaining table — are clouding the chances of a swift ratification, said Dan Uzcjo, an Ohio-based trade lawyer with Dickinson Wright.

“Right now I think it’s going to be a mess, I have to be candid,” said Uzcjo, who has been tracking the votes needed for a deal. “We’re in the middle of a shutdown, so that’s throwing the timetable off and we didn’t have a lot of time to begin with in 2019 to get this thing done. So I’m worried about both the procedural and political calendars right now, along with the players.”

The partial shutdown of the U.S. government — now in week five — is expected to delay the March 15 release of U.S. International Trade Commission’s report on the economic impact of the deal. The report’s publication is among the milestones to ratification outlined in the Trade Promotion Authority, the legislation that guides the negotiation and approval of trade agreements. Though those steps can be sped up if political consensus is achieved, Uzcjo expects House Speaker Nancy Pelosi to adhere tightly to them or even find ways to slow the process down.

“With the status quo of the original NAFTA in place, the Democrat strategy is going to be delay, delay, delay while they work for the things they want in the deal,” he said. “Pelosi knows very well how to do this.”

With the new Democrat-controlled congress just a few weeks old, Pelosi — currently locked in a bitter impasse with Trump over the shutdown — will be the “main interlocutor” with the White House on the politics of the new NAFTA and whether the party will support its passage or hold it up, said Todd Tucker, a fellow at the New York-based Roosevelt Institute.

The key figure on the substance of the deal will be Representative Earl Blumenauer of Portland, Ore., the newly appointed head of the powerful House Ways and Means trade subcommittee. An environmentalist from one of the most left-leaning districts in the U.S., Blumenauer is still “a pretty strong trade advocate,” who’s likely to insist on a prescriptive set of rules on labour and the environment that will satisfy the party, said Tucker.

Some of those changes could be made in side letters to the existing agreement, analysts say. But prominent Democrats, including possible presidential candidate and Ohio Democratic Senator Sherrod Brown, have suggested a return to the bargaining table is necessary to strengthen provisions on labour standards.

I’m worried about both the procedural and political calendars right now, along with the players.

Dan Uzcjo, trade lawyer

“Watching the presidential contenders is important,” said Tucker. “What are Elizabeth Warren, Bernie Sanders, and others who will be running for president saying about this deal? Because that will also very much affect Pelosi’s calculation about whether to support it.”

Indeed, the potential for the deal to get tied up in presidential campaign politics is serious enough that “unless it’s ratified by the middle of this year it just gets much harder for me to ever see it happening,” Tucker said, who foresees a vote in July at the earliest.

Also hard to predict will be the actions of the group of first-time members of Congress elected in the November midterms — and particularly the swath of Democrats that won in conservative suburban districts.

“The question is where do these new players fall on trade, because we’re going in somewhat blind on their views,” said Uzcjo. “What we’re tracking is they’re very unlikely to pass a trade deal that is proposed by President Trump. So I think Pelosi could have a tough time keeping that wing of the party in line on trade.”

The high-profile shutdown saga has already “limited the space for bipartisanship” in the U.S., the Eurasia Group risk consultancy said in a note this week. Though it still believes the deal will ultimately be passed, the group lowered the chances for ratification to 60 per cent from 65 per cent and pushed the timeline for passage into the second quarter of the year, warning that further delay would work against ratification.

I don’t think the Democrats are interested in making this impossible to pass. The ideal is for them to reshape it …

“While there is no direct line being drawn between shutdown and USMCA rejection, the longer it wears on, the clearer that line becomes,” the group said.

The question of whether the deal has enough support to pass will likely become clear by early March, said Gary Hufbauer, a senior fellow at Washington’s Peterson Institute for International Economics.

If the Democrats reject or stall it, Trump will then likely follow through on his threat to withdraw from NAFTA, he said. Though he is sure to face legal challenges, the required six-month notification of withdrawal will impose a timeline and a choice on Democrats: “Vote for it or face chaos.”

“I don’t think the Democrats are interested in making this impossible to pass,” said Hufbauer. “The ideal is for them to reshape it and I think that’s what they’ll try to do.”

A decision to lift the steel tariffs — unpopular with members of both parties — will likely be used as an incentive to round up the final votes needed for the deal, said Ujczo.